FAR Drill

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Bonds (effective-interest method)

• Issue price = face × PV of $1 + cash interest × PV of annuity, both at the market rate per period.
• Cash interest = face × stated rate per period. Interest expense = carrying value × market rate per period.
• Market > stated → discount. Market < stated → premium. The difference each period is amortization, moving carrying value toward face.

Leases (lessee, ASC 842)

• Finance lease if any test is met (OWNES): Ownership transfers, Written purchase option reasonably certain, Ninety percent (PV ≥ substantially all of fair value), Economic life (term is a major part, ≈75%), Specialized asset.
• Lease liability = PV of payments at the implicit rate, or the incremental borrowing rate if that isn't known.
• Finance: interest expense (liability × rate) + straight-line ROU amortization. Operating: one straight-line lease cost.

Revenue (ASC 606)

• 1 Identify the contract · 2 Identify performance obligations · 3 Determine the transaction price · 4 Allocate it · 5 Recognize revenue as each obligation is satisfied.
• Allocate by relative standalone selling price. Over-time (cost-to-cost): revenue to date = price × costs to date ÷ estimated total costs.
• Variable consideration: expected value or most likely amount, subject to the constraint.

Income taxes (ASC 740)

• Total tax expense = current (taxable income × rate) + deferred (change in DTL − change in DTA).
• Future taxable amounts → DTL. Future deductible amounts → DTA. Permanent differences → no deferred tax.
• Measure deferred taxes at the enacted rate for the reversal years. Valuation allowance if more likely than not a DTA won't be realized.

Round every calculation to the nearest dollar.